Diamond prices are not forever

Diamond prices slumped during the financial crisis, but a cut in production and growing customer base is pointing to a 5 per cent rise.

Transcript

TICKY FULLERTON, PRESENTER: Diamond prices slumped during the Global Financial Crisis, but a recent cut in production by the world's biggest producer is expected to see them rise by at least five per cent this year.

A growing customer base in emerging markets will also add pressure to prices.

Alicia Barry reports.

ALICIA BARRY, REPORTER: They are the hardest gem on Earth and one of the toughest things to trade successfully.

NIC CERRONE, OWNER, CERRONE: We buy diamonds even from all over the world, for instance from New York and Hong Kong and Israel and Belgium and, you know. These are the central cutters of the world.

But we are independent, we are capable of floating wherever there is the best prices available at that particular day.

ALICIA BARRY: Nick Cerrone is the owner of one of Australia's biggest jewellers. His Sydney workshop makes around 2,000 settings a week and demand is expected to remain steady.

NIC CERRONE: We have over 100,000 engagements a year in Australia, and that really - you know, there's a market there that shows you it's gonna be there this year and next year to come.

ALICIA BARRY: But concerns about a looming shortage have prompted the world's biggest diamond producer, De Beers, to cut output to around 40 million carats a year.

IAN MCGOWAN, INDUSTRY ANALYST, IBIS WORLD: Well we're forecasting that the price of diamonds will increase by around five per cent globally, and that's been driven partly by the reduction in supply by producers like De Beers.

MORRIS SYMONDS, MD, FAIRFAX AND ROBERTS: All in all, we've probably seen about a 50 per cent price drop in diamonds in Australian dollar terms. We sell all our diamonds on a live basis, on a live pricing basis, so the consumer is getting the benefit of the price reduction.

What we're seeing now is were De Beers specifically try to hold the price of rough up and push it up five per cent.

GARRY HOLLOWAY, OWNER, HOLLOWAY DIAMONS: I think the genuine reason is that De Beers is about to relist on the stockmarket.

ALICIA BARRY: De Beers has denied that's the case and says it's genuinely worried about running short of diamonds.

IAN MCGOWAN: In terms of global resources, we've seen mining companies explore further and further afield and dig deeper, deeper into the earth to sort of extract the diamonds. This has also been facilitated by the higher prices, means it's more economically viable to sort of go to these more far-flung places.

ALICIA BARRY: Mines in South Africa in particular are now winding down.

GARRY HOLLOWAY: South Africa is not the main player anymore; Botswana is by far the largest, followed by Russia, Canada and a couple of other African countries.

ALICIA BARRY: Adding pressure to the global supply of diamonds is the increasing demand coming from wealthy consumers in markets like China and India.

China recently took over from Japan as the world's second biggest diamonds market.

IAN MCGOWAN: They're expected to displace the US as number one market for diamonds by 2020.

ALICIA BARRY: And as the Chinese obsession grows, no doubt companies like De Beers will be working hard to ensure supply.